Having previously reported that Second Life merchants had been reporting they’d been sent forms related to tax information by Linden Lab, I’m pleased to see that Linden Lab have now issued a blog post regarding the situation. There are still some remaining questions regarding this, some Linden Lab may have the answers to and others the IRS will be the only people with the answers.
The post says:
“The Internal Revenue Service (IRS) requires Linden Lab to collect and retain Form W-9 (for U.S. residents) and Form W-8BEN (for non-U.S. residents) at certain transaction volumes. If you reach the transaction threshold and we do not have your completed and signed W-9 or W-8BEN on file, we are required to withhold funds from your account (at the current rate of 28% of your gross amounts received). Additionally, for U.S. residents with 200 or more transactions with a total amount in excess of $20,000 in a calendar year, we are required to file a Form 1099-K with the IRS reporting those transactions for that year.
If you are required to submit a W-9 or W-8BEN form to us, we will email you before the end of the year with instructions on how to do so. Please follow the instructions to complete and submit the required Form W-9 or W-8BEN within thirty (30) days of receipt. You will only need to complete this paperwork once unless your information changes from year-to-year. If you do not receive an email from Linden Lab, we do not need you to complete these forms.”
One would hope that there will be an accompanying knowledgebase article or wiki reference regarding this. As I stated in my previous post on the subject, the likes of Steam and Paypal have information regarding this on their websites.
There’s also another concern for merchants, which may or may not come to fruition, I’m not sure how well joined up organisations are regarding these matters. The issue is that the same requirement to file a Form 1099K with the IRS also applies to Paypal. Therefore the speculation has been that people may find they have information from two different companies regarding taxable income reported to the IRS, which may well lead to individuals having to talk to the IRS to explain that this is the same income.
This is certainly outside the scope of Linden Lab’s responsibility, it’s also outside the scope of Paypal’s, it’s something that the IRS will need to address and unfortunately it may be a headache for merchants.
Another area of concern from the speculation, which isn’t addressed in the blog post, is regarding when Linden Lab issue a W9 tax for US residents or w8-BEN for non US residents. Those discussing the issue in the SLUniverse thread suggested that the thresholds may be lower than those required by the IRS. The threshold stipulated by the IRS is 200 payments AND USD$20,000 in income.
Now it may be that LL are erring on the side of caution and working from a lower threshold due to the fact that customers can have more than one Second Life account. However it may be that people don’t understand what Linden Lab mean by a transaction, whereas quite a few will reach the USD20,000 threshold, you’d expect fewer to reach the 200 transaction threshold if a transaction is merely cashing out.
To get this into some sort of perspective, for someone to cash out over 200 times in a calendar year, they’d have to cash out four times a week. I doubt that many people are doing that. However it maybe that a payment, or transaction as Linden Lab call it, is the number of people who buy the Linden Dollars someone sells on the Lindex and has nothing to do with withdrawing the money to Paypal. For example if you were to sell say, 100,000 Linden Dollars, the chances are you’d have ten, twenty, maybe even thirty people buying those Linden Dollars. Now if Linden Lab are going by that definition, then people will quickly go over the 200 transaction mark.
So still a few questions to be answered but maybe LL will assist people by producing a knowledgebase article on the matter.